IWG: work in progress

IWG threw the book at coronavirus — scrapped dividend, slashed board salaries and capex — and still turned in an interim operating loss of £169.2m on the basis of the IAS 17 accounting standard. That is about £12 lost for every £100 in revenues. But it is also history. What matters now to shareholders who supported the equity raise is whether the pandemic-ravaged world jettisons big swanky offices in favour of the smaller, flexible spaces supplied by IWG.

Mark Dixon, boss and owner of a 29 per cent stake firmly believes it will. Some numbers substantiate his belief, not least a 4.1 percentage point increase in occupancy rates to 75.9 per cent, based on operations open throughout the period. The UK-listed group is the world’s biggest supplier of flexible office space, with 3,500 locations; erstwhile darling rival WeWork is now in retreat.

Demand should flourish as the ranks of newly unemployed spawn new entrepreneurs. Big employers such as Google and Facebook are committing to working from home well into next year and beyond; plenty of smaller ones are forgoing leases on near-empty offices in big city centres. IWG can serve them with its virtual office package — furniture, phone line, secretarial support — which already makes up 8 per cent of turnover. Alternatively it offers cheaper suburban office space: think places such as Slough, home of the fictional Wernham Hogg Paper Company, rather than London’s Canary Wharf.

Yet investors demurred after IWG released results, sending shares down 6 per cent in early morning trade on Tuesday. Their focus: the 4 per cent cut to its 3,500 locations, on top of the 1.5 per cent already sliced. IWG’s business model leaves it in the wretched middleman position, wedged between intransigent landlords and bleating tenants; not for nothing has one FT reader dubbed the company “WeWork in a suit”. So far it has taken provisions of £9m for bad debts and £29.1m for small and medium-sized tenants’ deferred rents out of a total £155.8m coronavirus-related charges. SME insolvencies will only grow as government support programmes end. The bears are still ahead this time.

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